An N.C. Senate committee on Wednesday backed a constitutional referendum to prevent legislators from raising personal income taxes in the future.
Senate Bill 75 would ban lawmakers from raising the income tax rate higher than 5.5 percent – if voters approve the constitutional amendment in a ballot referendum, which would be held during the November 2018 election.
“It gives them the opportunity to make that decision rather than us,” said the bill’s sponsor, Republican Sen. Tommy Tucker of Union County.
Currently, the constitution caps income tax rates at 10 percent. Lawmakers have set the personal income tax rate at 5.499 percent – so the amendment would prevent any future tax hikes.
Democrats voted against the bill, arguing it would make it difficult for the state to raise revenue in a recession or another emergency. “My concern about this bill is that it does indeed put financial handcuffs on future legislatures,” said Sen. Floyd McKissick, a Durham Democrat.
Tucker pointed out that income tax hikes aren’t the only option for raising revenue. “If you have a shortfall, if you have a recession, you can always raise the sales tax a penny and you can get a billion dollars from that,” he said, adding that the state immediately gets new sales tax revenue while income tax increases can take a year to generate revenue.
McKissick responded that sales taxes aren’t necessarily the best way to raise money because “low and moderate income people pay them disproportionately.”
Sen. Jerry Tillman, an Archdale Republican, blamed Democrats for the state’s tight finances that required tax increases during the last recession. “We’ve got a rainy day fund that is healthier, we’re going to have some backup funds,” he said. “There are ways to meet recessions, but you’ve got to be prepared for them, and you all weren’t.”
The Senate approved a similar bill last year that also included proposed constitutional amendments involving hunting rights and eminent domain. It passed the Senate in a 31-18 vote, mostly along party lines, but it never got a hearing in the House.
This year, the conservative advocacy group Americans For Prosperity plans to drum up support for the tax cap amendment. AFP issued a news release Wednesday announcing that its “volunteers and staff will call over 100,000 North Carolinians to urge them to contact their lawmaker, and the organization will announce a media buy to build public awareness and drive support.”
“This bill is an important step to ensuring North Carolina continues on the path of major economic gains due to state tax reform,” AFP state director Donald Bryson said.
After passing the Senate Finance Committee Wednesday along party lines, the bill now heads to the Rules Committee for another hearing before the full Senate votes.